Home Owner Equity Protection Act
by Dan Pierce
The Home Ownership and Equity Protection Act of 1994 was created by the Federal Trade Commission (FTC) under the authority of the Truth in Lending Act to deal with "certain unfair or deceptive practices in home equity lending."
Loans covered by the law are first mortgages with annual percentage rates (APR) of interest more than eight points higher than comparable Treasury securities, and second mortgages with APRs more than 10 points higher. Also covered are loans with closing costs greater than $583 (the 2009 figure; figures adjusted each year by the FTC) or 8 percent of the total loan.
The law is directed primarily at refinancing or home equity installment loans that are considered high-rate or high-fee.
Lenders must give the applicant notice that he has three days to back out without penalty and warn, in writing, that the homeowner could lose the home if he fails to make payments. Lenders also must provide information concerning the APR, monthly payments and total loan amount.
Lenders are prohibited from requiring balloon payments, negative amortization, charging interest rates higher upon default than the pre-default rates, refinancing the loan within 12 months and requiring certain pre-payment penalties. Also banned are certain repayment schedules and interest rebates.
Right to Sue
The borrower has the right to sue if a lender violates any of the requirements and may be able to rescind the loan for up to three years.